Six percent power tariff hike: IMF may be approached for waiver

ISLAMABAD (April 22 2010): Pakistan may again approach the International Monetary Fund (IMF) for waiver of 6 percent increase in power tariff, due from April, after a comprehensive strategy based on long-, medium- and short-term measures being announced by Prime Minister Yousaf Raza Gilani to address the energy crisis and resolve the issues of power sector.

Sources said that the issue of waiver on power tariff was not resolved during the recent talks with the IMF delegation and the final decision to this effect was to be taken by political leadership. The relaxation on power tariff was reported to have been linked to the satisfaction of Asian Development Bank and World Bank who wanted Pakistan to devise a clear strategy for addressing the growing energy crisis and the issues of power sector including circular debt.

Sources said that measures to be unveiled on Thursday after three days' deliberation at the energy conference would hopefully address the concerns of ADB and WB and also their suggestion at least to some extend for use of gas as input for power generation through closure of CNG stations and industrial units for one-day a week to divert 150 MMCFD gas to the power sector.

Pakistan wanted waiver with respect of 6 percent increase in electricity tariff that was due from April 1 because of expected strong backlash from the masses who are already protesting across the country against intolerable power outages. This waiver would not have any impact on fiscal deficit and money for other heads would be use for subsidy. They said that total impact of holding on due increase in power tariff would be around Rs 25 billion for the next three months, which would be met by using Rs 25 billion subsidy earmarked in the budget for wheat import.

Under IMF conditions, the government had agreed to raise the power tariff by 24 percent during the current fiscal year, in three phases. Tariff was increased by six percent in the October-December quarter and another 12 percent in January-March, while another six percent was committed by the government to the IMF to become effective from April 1. Sources said that further increase in electricity tariff at this point in time of deepening power crisis was not possible.

Any increase in the electricity tariff would aggravate anger of the masses against the government and they might resort to protest and riots. This would ultimately have negative impact on growth and revenue and increase in the price of power would escalate inflationary pressure as well.

Having taken into consideration all these aspects, sources said, the government may request IMF for waiver in power tariff increase due from April 1. The government has not been able to reduce transmission and distribution losses or improve efficiency; subsidy on electricity would reach Rs 146 billion against Rs 66 billion budgeted for the ongoing fiscal year.

The government had allocated Rs 66 billion for power subsidies in the ongoing budget, while Rs 55 billion approval was sought during the second quarter of on-going fiscal year. At present, approval of another estimated Rs 25 billion is being requested from the IMF.